Two new Wärtsilä JVs with CSSC: 2-stroke engine business and medium-speed diesel and dual-fuel engines

18 July 2014

Wärtsilä and China State Shipbuilding Corporation (CSSC)—one of the largest shipbuilders in the world—will form two new joint ventures. The first will take over Wärtsilä’s 2-stroke engine business. Through the agreement, CSSC will own 70% of the business through its affiliate CSSC Investment and Development Co. Ltd, while Wärtsilä will hold a 30% ownership position.

Wärtsilä and China State Shipbuilding Corporation (CSSC) also signed an agreement to establish a joint venture for manufacturing medium- and large-bore medium speed diesel and dual-fuel engines. The company will in particular target the growing offshore and LNG markets, as well as the market for very large container vessels. The Wärtsilä share of the joint venture is 49% and the size of Wärtsilä’s equity investment is approximately €12 million (US$16 million).

2-stroke business. Wärtsilä acquired the 2-stroke business in 1997, but has been struggling with market share between 10 and 20%, said Björn Rosengren, President & CEO. Rosengren said that a share of at least 30% is needed. After looking at different alternatives, he said, the company “found a way we are happy with.”

Wärtsilä and CSSC will co-operate in 2-stroke engine technology, marketing, sales, and service activities. The parties have agreed to transfer CSSC’s whole position as shareholder to a joint venture established by an entity connected with the Municipal Government of Shanghai and CSSC.

Responsibility for servicing Wärtsilä’s 2-stroke engines will remain with Wärtsilä Services through its global network to support customers in a more dedicated and efficient way. The joint venture parties will support Wärtsilä Services by providing global ship owners with complete solutions of advanced 2-stroke technologies.

The value of the transaction is approximately €46 million (US$62 million). The financial impact of the deal will be dependent on the timing of the closing and certain related mechanisms. The deal will have a positive effect on Wärtsilä’s continuing operations. The closing of the transaction is subject to the required regulatory approvals, which are expected during the first quarter of 2015.

The joint venture will be domiciled in Switzerland, and the head office will remain at the present 2-stroke engine headquarters in Winterthur. The current 2-stroke engine business management team will remain in place.

The joint venture will assume ownership of Wärtsilä’s 2-stroke engine technology, and will continue to develop and promote sales of the engine portfolio with the full support of both partners.

The objective of the partnership is to combine the strengths of the two partners, both of whom are major players in the global marine sector. The participation of CSSC, the largest shipbuilding conglomerate in China, will accelerate the company’s growth in important Asian markets, while retaining its position as an international supplier to the global shipping industry. The partnership will enhance the position of Wärtsilä’s 2-stroke technology in the marine engine market, the company said, and will provide a base for future investments in leading 2-stroke technology and customer support.

Medium-speed. The CSSC Wärtsilä Engine (Shanghai) Co. Ltd factory will be located at Lingang, Shanghai and is expected to have its first engine ready for delivery by the end of 2015.

The new joint venture company, CSSC Wärtsilä Engine (Shanghai) Co. Ltd, together with two other already existing Wärtsilä joint ventures for medium-speed engine production, will now be able to offer the most complete portfolio of Wärtsilä branded medium speed engines in China.

It will also be the first China-based company able to manufacture locally large-bore medium-speed diesel and dual-fuel engines. By being able to produce and deliver locally, the new joint venture will provide CSSC Group and other Chinese yards with closer access to the Wärtsilä range of engines with the benefits of faster delivery times and competitive pricing.

When in full production, the company will manufacture Wärtsilä 26 engines in V-configuration, Wärtsilä 32 main and auxiliary engines, Wärtsilä 46 engines and the Wärtsilä 34DF and Wärtsilä 46DF dual-fuel engines. With LNG becoming increasingly popular as a marine fuel and dual-fuel capability being of increasing importance for both economic and environmental reasons, Wärtsilä’s industry-leading dual-fuel offering is a major consideration for Chinese yards.

This agreement marks an historic moment for our two companies, and it opens the door to exciting new opportunities. China is today the largest shipbuilding nation on earth, and CSSC is the largest shipbuilding company in China. Wärtsilä offers the marine industry’s broadest scope of products, solutions and services, and through this joint venture our two companies can deliver leading edge engine technology that can improve efficiencies and lower operating costs for owners and operators everywhere.

CSSC is one of the largest shipbuilding groups in the world, with ten yards in China accounting for approximately 25% of the country’s newbuild capacity. In 2004 Wärtsilä set up its first joint venture with the CSSC Group when establishing Wartsila CME Zhenjiang Propeller Co Ltd for propeller production.

Wärtsilä has been present in China for more than 20 years, through its fully owned subsidiary and long-term licensing agreements. To serve the world’s largest shipbuilding region, Wärtsilä has established joint ventures for propeller, auxiliary engines and mid-size medium-speed engine production with strong Chinese industrial groups and a joint venture for automation services.

Wärtsilä also manufactures thrusters at its fully owned company facilities, while low-speed engines are produced by eight licensees and by a joint venture company.